Understanding Taxation on IUL Withdrawals
Indexed Universal Life (IUL) Insurance: A Brief Overview IUL is a type of permanent life insurance that includes an investment component tied to a stock index. It offers a death benefit and the potential for cash value growth.
Tax Implications on IUL Withdrawals
- Withdrawals: Taxable if they exceed the basis (the amount you’ve paid into the policy).
- Policy Loans: Generally not taxable as they’re considered a debt, not income.
Examples of Taxation on IUL Withdrawals and Loans
- Withdrawal Exceeding Basis: If you’ve paid $50,000 into your IUL and withdrawn $60,000, the extra $10,000 is taxable.
- Policy Loan: Borrowing $40,000 from your IUL cash value is typically not a taxable event.
Understanding the tax implications of IUL withdrawals and loans is crucial. Withdrawals can be taxable, while loans generally are not. This knowledge helps in making informed decisions about your IUL policy.
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